SBSP3 SABESP

The São Paulo State Basic Sanitation Company, SABESP, was created in 1973 as a mixed-capital company with the goal of consolidating the guidelines of the National Sanitation Plan (PLANASA) and structuring the provision of water and sewage services in the State of São Paulo. Over the course of its history, the company went through significant capital markets transactions and corporate reorganization processes. In 1994, it registered as a publicly held company with the CVM and, since 1997, its common shares have been traded on B3 under the ticker SBSP3. In 2002, it joined B3’s Novo Mercado listing segment and, in the same year, began trading level III ADRs on the New York Stock Exchange (NYSE), expanding access to the international capital markets. The State of São Paulo’s stake in its capital was gradually reduced through secondary offerings, culminating in the privatization process completed in July 2024, when a new bylaws was established with the creation of a special class preferred share, the golden share, held by the State of São Paulo, preserving veto rights over topics considered strategic.

SABESP’s business model is centered on the provision of basic sanitation services, focused on drinking water supply and sewage collection and treatment. The company operates in all stages of the water supply chain, including abstraction from surface and underground sources, treatment, storage and distribution, in addition to the collection, transportation, treatment and final disposal of sanitary sewage. Its corporate purpose also allows it to operate in urban drainage and stormwater management, urban cleaning, solid waste management and related activities, although net revenue is entirely derived from the provision of sanitation services. In 2024, SABESP reported net operating revenue of approximately R$ 36.1 billion, fully associated with concession and public sanitation service contracts. The company also structures adjacent businesses related to water reuse, treatment of non-domestic effluents and small-scale power generation, generally through minority interests in special purpose entities.

From an operational standpoint, SABESP directly serves 375 municipalities in São Paulo State in the retail segment, in addition to two municipalities in the wholesale segment (Mogi das Cruzes and São Caetano do Sul), which positions it as the largest sanitation company in Brazil in terms of service volume. On December 31, 2024, water supply services had around 10.4 million active and inactive connections, serving approximately 28.1 million people, which represents about 61% of the population of the State of São Paulo. In sewage services, there were 8.9 million active and inactive connections, serving around 25.1 million inhabitants. The customer base is diversified among residential, commercial, industrial and public sector consumers, with no individual customer accounting for more than 10% of net revenue. In 2024, the combined billed volume of water and sewage reached around 4.3 billion m³, with a predominance of residential consumption. The company also reported initiatives to increase operational efficiency, such as implementation of zero-based budgeting, modernization of meters, actions to combat consumption fraud and voluntary separation programs to adjust headcount.

SABESP’s geographic presence is concentrated in the State of São Paulo, with no operations abroad, but with broad activity in metropolitan regions, inland areas and the coast. The company operates in a state with one of the highest per capita incomes in the country, which contributes to a relatively lower delinquency profile across the municipalities served. The revenue structure is heavily concentrated in major urban centers: in 2024, the ten main municipalities accounted for 70.4% of gross revenue, with emphasis on the city of São Paulo, which alone represented 51.8% of the total. In addition to its direct operations, the company has joint ventures such as Águas de Castilho S.A., Águas de Andradina S.A. and Sesamm – Serviços de Saneamento de Mogi Mirim S.A., expanding the provision of water supply and sewage treatment services through specific corporate structures. SABESP has also been expanding its presence through bidding processes and individual concessions, such as the 30-year contract to provide services in the Estância Turística de Olímpia, assumed in 2023 through a special purpose entity.

SABESP’s operating assets include a relevant set of water production systems, dams, water treatment plants (ETAs) and sewage treatment plants spread across the State of São Paulo. On December 31, 2024, the company operated 250 ETAs, compared to 235 in the previous year, with a strong concentration in the São Paulo Metropolitan Region (RMSP). The main supply systems serving the RMSP are Cantareira, Guarapiranga, Alto Tietê, Rio Grande, Rio Claro, Cotia and São Lourenço, which together stored around 953.9 million m³ of water for treatment on that date, excluding the Cantareira System’s technical reserve. The average monthly water production for the RMSP was 67.2 m³/s in 2024, higher than 64.8 m³/s in 2023, reflecting the relevance and complexity of the water system operated. The water treatment process uses conventional technology with coagulation, flocculation, decantation, filtration, disinfection and fluoridation steps, complemented by advanced technologies such as ultrafiltration and reverse osmosis in specific units, and is monitored by systematic quality control in laboratories accredited by INMETRO.

In regulatory terms, SABESP operates in a highly regulated, multi-level environment. At the state level, the São Paulo State Public Services Regulatory Agency (ARSESP), created in 2007, regulates and supervises the sanitation services provided by the company, including tariff and quality aspects. In line with the New Legal Framework for Sanitation (Federal Law No. 14,026/2020) and State Law No. 17,383/2021, the municipalities served by the company were organized into the Regional Unit for Drinking Water Supply and Sewage Services in the Southeast region (URAE-1). In 2024, SABESP executed a unified concession contract with URAE-1, effective until October 19, 2060, with its effectiveness subject to the completion of the privatization process. This contract gradually replaces the previous logic of individual program contracts and incorporates universalization targets, investment requirements and economic and financial parameters. At the federal level, the National Water and Basic Sanitation Agency (ANA) issues reference standards for the sector, which may be adopted by ARSESP, mainly on topics such as tariff regulation, universalization targets, quality standards and calculation of compensation.

SABESP’s corporate and governance structure was significantly altered with the 2024 privatization. State Law No. 17,853/2023 authorized the sale of the State of São Paulo’s stake, including the controlling stake, through an exchange auction or public offering, and established the Universalization Support Fund in the State of São Paulo (FAUSP), aimed at financing the universalization of sanitation services. With the completion of the public offering in July 2024, the company ceased to have a shareholder holding more than 50% of its share capital, adopting bylaws mechanisms that cap the concentration of up to 30% of common voting shares in a single shareholder or group of shareholders. The golden share granted to the State ensures veto power over changes related to the company’s name and registered office, the corporate purpose of providing water and sewage services, and limits on the exercise of voting rights. In the capital markets, in addition to regulation by the CVM and B3, the company is subject to SEC rules and the Foreign Corrupt Practices Act (FCPA) due to its ADRs listed on the NYSE.

Regarding environmental, social and governance practices, SABESP aligns its strategy with a structured ESG agenda. In 2023, the company explicitly incorporated environmental, social and governance principles into its corporate strategy and, in 2024, created the Sustainability and Corporate Responsibility Committee in its bylaws, composed of three to five members, including a representative elected by employees. This committee is responsible for integrating ESG factors into the business strategy and guiding the adoption of social, environmental and governance standards in internal policies and procedures. The company prepares an annual Sustainability Report based on Global Reporting Initiative (GRI) standards, Sustainability Accounting Standards Board (SASB) standards and Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, and also links its initiatives to the UN Sustainable Development Goals and the Global Compact principles. The provision of treated water and sewage services, in itself, is directly linked to environmental preservation and public health, with significant impacts on quality of life, rational use of water resources and mitigation of water pollution in urban and metropolitan areas.

In the competitive context, SABESP operates in a public-utility market characterized by long-term concessions and strong regulatory intervention, in which competition occurs mainly at the bidding stage for new contracts or renewals. The company is one of the largest sanitation operators in the world in terms of population served and investment levels, historically accounting for a significant share of the sector’s investments in Brazil. Its operations are fully concentrated in the state of São Paulo, with no revenue from abroad, and its revenue is influenced by factors such as tariff adjustments defined by regulators, contractual reviews, weather conditions that affect water availability, billed volume, the macroeconomic environment and regulatory changes. The SBSP3 shares traded on B3 reflect this profile of a capital-intensive public utility company, with predominantly regulated revenues and exposure to public policy decisions and sector regulation.